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Transformational cost reduction to compete in new medtech landscape

A worldwide medical device manufacturer and distributor needed to quickly turn around declining profitability by adapting to changing marketplace dynamics. With Bain's help, Medical DeviceCo transformed its business model and identified over $300 million in cost savings, freeing up capital to invest in rapidly growing emerging markets.

min read

At a Glance

$300M
freed up for re-investment in growth through acquisitions and emerging markets

25%
reduction in spend

The Full Story

The Situation

After years of growth, Medical DeviceCo faced declining revenues and profit margins due to a combination of increasing pricing pressures and its maturing product portfolio. Past cost-cutting initiatives failed to keep pace with new industry realities.

By mid-2010, the company realized that regaining its competitive edge required rebuilding its business model in response to four major trends:

Hospital consolidation, with an increased focus on price-based purchasing

A shift in purchasing decisions from physicians to hospital procurement departments

Uncertainty around healthcare reform

Medical technology tax

The bottom line: Medical DeviceCo needed to cut costs faster and deeper than planned without jeopardizing quality, with the goal of using savings to fund growth opportunities in emerging markets and through acquisitions.

Our Approach

Working collaboratively with the CEO, Bain deployed its performance improvement toolkit to develop a multi-prong strategy for transforming Medical DeviceCo into a cost leader.

An analysis by Bain showed that cost effectiveness would define healthcare winners in the increasingly price-sensitive landscape. But employee productivity at the medical device maker lagged behind competitors.

Targeting offshore outsourcing opportunities across all business operations

Conducting an outsider's perspective cost analysis of the organization to identify "out of the box" ideas

Our Recommendations

We recommended that the CEO and the senior executive team implement a comprehensive cost transformation plan to achieve its goals of improved financial performance and funding growth opportunities with cost savings.

The plan called for deploying five major initiatives:

Redesign the commercial model to be more efficient and effective with all customer stakeholders

Use zero-based budgeting to redesign Quality and IT functions from the ground up

Provide lighter touch analysis of the rest of the expense base to support functional leaders in cost reduction

Set up offshoring capability to enable more effective and efficient functional support and to tap global talent